Albania Joins the Flat Tax Club

Spurred by tax competition, the flat tax revolution continues to generate positive results. Albania will have a 10 percent flat tax beginning in January 2008. The corporate rate also will be 10 percent, as will the payroll tax. The latter reform is particularly interesting since many of the flat tax nations in Eastern Europe retain punnitive payroll tax rates - a policy that undermines the pro-growth and pro-employment effects of the flat tax. The Southest European Timesreports:

In a bid to promote growth and improve the business climate, the administration of Albanian Prime Minister Sali Berisha plans a major overhaul of the tax system. The biggest change is a switch to a flat tax. “As of January 1st, 2008, Albania will have implemented the 10% flat tax system, one of the lowest in Europe,” Berisha told a business community meeting in late March. Corporate taxes, currently at 20%, are to be slashed in half. Social security contributions from businesses will likewise be capped at 10%. The government and other supporters of the reform say it will widen the taxable base and simplify tax administration, while also making Albania an easier place to invest. According to Finance Minister Ridvan Bode, the changes will lead to a more streamlined fiscal system. “The flat tax helps eliminate the potential arbitrage between corporate tax, dividend taxes and the income tax,” he says. VAT and other taxes will also be gradually reduced in order to woo investors, the minister added. …In the past, the IMF has been wary of plans to reduce taxes in Albania. This time, however, it seems more receptive – provided the overhaul is combined with more effective revenue collection. “We will negotiate with the Albanian government about the tax reduction, depending on the tax collection,” IMF representative Ann Margaret Westin told the press.